Bharat Nidhi Ltd. Vs. Takhatmal &
Ors  INSC 183 (7 August 1968)
07/08/1968 BACHAWAT, R.S.
CITATION: 1969 AIR 313 1969 SCR (1) 595
Debtor and Creditor--Power of attorney
coupled with endorsement on bill by debtor in favour of creditor--Equitable
assignment of future debt--If valid.
The appellant-Bank, agreed to finance the
contracts undertaken by M. and to advance monies against his bills for supplies
under the contracts. For the purpose of carrying out this arrangement M
executed an irrevocable power of attorney in favour of the appellant
authorising the latter to receive all monies due or to become due to M in
respect of pending or future contracts. M made a bill, endorsed it in favour of
the appellant for collection, and handed it over to the appellant for
collection. Before the appellant received the payment, the amount under the
bill was attached by the first respondent in execution of a money decree
obtained by him against M. The appellant filed a suit for a declaration that he
was the assignee of the bill and the first respondent had no right to attach
it. The suit was decreed, but in appeal, the High Court dismissed the suit.
In appeal, on certificate, this Court:
HELD: The appeal must be allowed.
The power of attorney coupled with the
endorsement on the bill was a clear engagement by M to pay the appellant- Bank
out of the monies receivable under the bill and amounted to an equitable
assignment of the fund by way of security. The obvious intention of the parties
was to provide protection for the lender and to secure repayment of the loans.
With that object in view the lender was authorised to receive payment of the
loans. As the lender had an interest in the funds the power of attorney was
expressed to be irrevocable. [597 D, H] There can be a valid equitable
assignment of future.
debts. A pay order is revocable mandate. It
gives the payee no interest in the fund. An assignment creates an interest in
the fund and is not revocable. Read in the light of the power of attorney the
endorsement on the bill created an interest in a specific fund and was
There was thus a sufficient equitable
assignment of a specific fund in favour of the appellant-Bank. [598 H; 599 B]
Loonkaran Sethiya v. State Bank of Jaipur,  1 S.C.R. 122 followed. Palmer
v. Carey  A.C. 703 at 706; Tailby v. Official Receiver,  13 A.C.
523, applied, Jagabhai Lallubhai v. Rustamji Nauserwanji,  I.L.R. 9 Bom.
311, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 133 of 1965.
Appeal from the judgment and decree dated
February 17, 1962 of the Madhya Pradesh High Court in First Appeal No. 89 of
LI 3 Sup. CI/68--7 596 S.N. Anand, for the
S.S. Shukla, for legal representatives for
respondent No. 1.
B.C. Misra and M.V. Goswami, for respondent
The Judgment of the Court was delivered by
Bachawat, J. M.R. Malhotra was working as a contractor to the military and
other authorities. He needed funds for the execution of his contracts. The
appellant-Bank formerly known as the Bharat Bank Ltd., agreed to finance the
contracts and to advance monies to Malhotra against his bills for supplies
under the contracts. For the purpose of carrying out this arrangement Malhotra executed
an irrevocable power of attorney in favour of the appellant on July 13, 1946.
The power of attorney recited: "Whereas we are working as contractors to
the Government in its various departments and have entered into certain
contracts and will in future enter into other contracts and whereas an
agreement dated 13-7-1946 has been made between us and the Bharat Bank Ltd., in
pursuance of which the attorneys have agreed to finance contracts and to
advance us sums of money, against supply bills for payments to be received by
us under the contracts issued by the Government in various departments on
conditions mentioned therein; and whereas we, for the purpose of carrying out
the terms of the said arrangement more effectively and to secure the interest
of the attorneys are desirous of appointing the Bharat Bank Ltd., as our lawful
attorneys in all matters relating to the receipt of all payments under the
contracts made or to be made hereafter." The document appointed the
appellant to be the attorneys of Malhotra "to present and submit supply
bills regarding our contracts to the proper officer and/or authority of the
Government Departments concerned; to obtain cheques for sums payable to us
under the contracts directly in their own name or in our names in payment of
such bills or other amounts and to cash and to receive-the amount thereof and
appropriate such receipts towards and in repayment of the advances made or to
be made hereafter and all other monies due from us to the attorneys in any
account what soever." The appellant was also authorised to sue for,
recover and receive the monies due in connection with the contracts with the
approval of MaLhotra, to conduct and defend proceedings in consultation with
him and to take steps in his name and on his behalf. Malhotra promised and
declared that "all powers hereby granted are and shall be irrevocable as
long as any claims of the attorneys against, us whether for principle,
interest, costs, charges or otherwise remain outstanding and unpaid."
Intimation of the power of attorney was given by the appellant to the military
authorifles. On July 19, 1948 Malhotra made out a bill on the military
authorities for Rs. 49,633/8/7- then due to him in respect of his supplies
under the contracts during 1945- 46 and handed over 597 the bill to the
appeLlant for collection. On the bill, Malhotra made, the following
endorsement: "Please pay to Bharat Bank Ltd.,Jabalpur." The appeLlant
sent the bill to the military authorities for payment. Before the appellant
received the payment, the amount due under the bill was attached by Takhatmal
in execution of a money decree obtained by him against Malhotra. The appeLlant
filed objections in the execution proceedings. On September 11, 1952 the
objections were dismissed. On December 12, 1952 the appellant filed a suit in
the court of the 1st Additional District Judge, Jabalpur, against Malhotra and
Takhatmal asking for a declaration that the appellant was an assignee of the
biLl and that Takhatmal had no right to attach it. The Trial Court held that
the appellant was the assignee of the bill and decreed the suit. Takhatmal
filed an appeal against the decree. The High Court of Madhya Pradesh allowed
the appeal and dismissed the suit. The present appeal has been filed by the
plaintiff after obtaining a certificate from the High Court.
The sole question in this appeal is whether
the power of attorney dated July 13, 1946 coupled with the endorsement on the
bill dated July 19, 1948 amounts to an equitable assignment of the monies due
under the bill in favour of the appellant. There are many decisions on the
question as to what constitutes an equitable assignment. The law on the subject
admits of no doubt. In Palmer v. Carey(1) Lord Wrenbury said :-- "The law
as to equitable assignment, as stated in Rodick v. Candell (1 D.M. & G.
763, 777, 778) is that: The extent of the principle to be deduced is that an
agreement between a debtor and a creditor that the debt owing shall be paid out
of a specific fund coming to the debtor, or an order given by a debtor to his
creditor upon a person owing money or holding funds belonging to the giver of
the order, directing such person to pay such funds to the creditor, will create
a valid equitable charge upon such fund, in other words, wfll operate as an
equitable assignment of the debts or fund to which the order refers." In
construing the power of attorney it is necessary, to bear in mind that the
relationship of the two parties, Malhotra and the Bank was that of borrower and
lender and that the document was brought into existence in connection with a
proposed transaction of financing of Malhotra's contracts.
The loans were to be advanced by the Bank
against Malhotra's bills for supplies under the contracts. The obvious
intention of the parties was to provide protection for the lender and to secure
repayment of the loans. With that object in view the lender was authorised to
receive pay- (1)  A.C. 703 at 706.
598 ment of the bills and to appropriate the
receipts towards repayment of the loans. As the lender had an interest in the
funds the power of attorney was expressed to be irrevocable.
On a proper construction of the document the
conclusion is irresistible that there was an agreement between the lender and
the borrower that the debt owing to the lender would be paid out of a specific
fund of the borrower in the hands of the Government authorities. The power of
attorney coupled with the endorsement on the bill dated July 19, 1948 was a
clear engagement by Malhotra to pay the appellant Bank out of the monies
receivable under the bill and amounted to an equitable assignmen of the fund by
way of security.
The question whether a document amounts to an
equitable assignment or not is primarily one of construction but we may mention
a few decisions which throw light on the matter. Jagabhai Lallubhai v. Rustamji
Nauserwanji(x) the Bombay High Court held that an agreement to finance the
borrower and a power of attorney of even date to receive the monies due to the
borrower under certain contracts had the effect of an equitable assignment of
the funds. In Loonkaran Sethiya v. State Bank of Jaipur(2) this Court held that
a power of attorney authorizing a lender to execute a decree then passed in
favour of the borrower or which might be passed in his favour in a pending appeal
and to credit to the borrower's account the monies realised in execution of the
decree amounted to an equitable assignment of the funds.
In the last case the Court held that there
was no transfer of the decree, or of the claim which was the subject-matter of
the pending appeal as the borrower continued to be the owner and the lender was
merely authorised to act as his agent. Nevertheless the Court held that the
power Of attorney amounted to a binding equitable assignment. An actionable
claim may be transferred under s. 130 of the Transfer of Property Act. Where a
document does not amount to a transfer within s. 130 it may apart from and
independently of the section operate as an equitable assignment of the
In the present case the power of attorney
authorised the appellant to receive all monies due or to become due to Malhotra
in respect of pending or future contracts with the government authorities.
Counsel argued that there was no engagement to pay out of specific fund and
therefore there was no assignment. We find no substance in the contention.
There can be a valid equitable assignment of
future debts, see Tailby v. Official Receiver(3). As and when the debt comes
into existence it passes to the assignee, (1)  I.L.R. 9 Born. 311.
(2)  1 S.C.R. 122.
(3)  13 A.C. 523.
599 As a matter of fact when the debt due to
Malhotra came into existence, he specifically appropriated it for payment to
the appellant. On July 19, 1948 he made out a bill for the monies then due to
him and endorsed on it: "Please pay to Bharat Bank Ltd., Jabalpur."
The bill with the endorsement was sent to and acknowledged by the military
authorities. Counsel submitted that this document was a pay order. Now there is
an essential distinction between a pay order and an assignment. A pay order is
a revocable mandate. It gives the payee no interest in the fund. An assignment
creates an interest in the fund and is not revocable. Read in the light of the
power of attorney the endorsement on the bill dated July 19, 1948 created an interest in a specific fund and was irrevocable. There was thus a sufficient
equitable assignment of a specific fund in favour of the appellant. The High
Court was in error in holding that there was no equitable assignment.
In the result, the appeal is allowed, the
decree passed by the High Court is set aside and the decree passed by the 1st
Additional District Judge, Jabalpur, is restored. The respondents who are the
legal representatives of Takhatmal shall pay out of his assets in their hands
the costs of this appeal as also the costs in the courts below.
Y.P. Appeal allowed.